Step 7: How to Handle the Offer Process
The Offer Process Introduction
The challenge to everyone involved in the home-buying and selling process is that not only is the transaction complex, but it is also under a time constraint. Buyers are trying to get into a home before their pre-approval expires, and sellers are trying to get an offer in hand before they have to re-sign with an agent.
As a home seller, each offer you receive is going to be an opportunity to sell your home. Working with your agent, you are going to have to cull the good offers from the bad, discern who will get you the best price, and who will be the right fit for buying your home.
You Got an Offer! Now What?
Assess and Negotiate the Offer
Increasingly in the real estate market, it has become common for counter-offers, counter-counter-offers, and all the way on down. If the buyers are lowballing you, it’s important to strike the right balance of firmness while not frightening the buyers away.
Your agent will have a good idea of the kinds of negotiation tactics that have come into popularity in the market, and can probably make an educated guess as to what the buyer’s agent is coaching them to do. Depending on the market, and what else is being sold in the neighborhood, the price is likely the first thing to budge on. What not to budge on is the buyer’s financial fitness, and it’s important that they send you a pre-approval letter.
Additionally, real estate contracts are seemingly becoming more and more complex, but the parts of any contact to be most wary of is anything non-standard. Watch out for anything handwritten into the contract, or an addendum with a radically different style of language. Remember… your agent is here to help!
Pricing Strategy and Counter-offer Strategy
If you’ve priced your home fairly and you’re in a seller’s market, counter with your original list price, or reject the offer entirely and invite potential buyers to resubmit. They’ll get the idea that you’re pretty firm on price, and if they’re serious about buying your home, they’ll come back with a better bid, allowing you to begin the real negotiations from a more favorable position.
If you do make a counteroffer, make it time-sensitive. That way, you won’t get caught up in a never-ending (and legally binding) negotiation, and you’ll still be free to entertain better offers, should they arise.
As you probably recall, buying a home is an expensive process. Your potential buyers may request that you cover part of their closing costs. Depending on your options, you might want to consider doing so. But if you’re going to make that concession, try to work those closing costs into the overall price of the home.
For example, you might stipulate that you’ll cover closing costs at the time of the sale, but only if the buyers are willing to compensate you with a higher purchase price. The buyers get to conserve cash flow when they need it most, and you’re not losing any money. It’s a win-win.
Be prepared. Ask yourself these questions (and discuss with your agent).
- What is your lowest price for the house you are willing to sell it for to determine how/when to counter?
- Does the market conditions warrant your counter offer?
- Should you make a full price counter offer?
- What are the offers and conditions, contingencies, fixes, closing costs etc. you are willing to negotiate on?
How to Negotiate (Tip: Trust Your Agent)
Your agent is a key part of the negotiation process and can guide you to the best decision for your situation and needs. Being informed of the process is key to understanding your options, but ultimately, deciding when to negotiate or accept an offer is up to you.
3 Quick Negotiation Tips For Every Home Seller
Know Your Market
Find out what comparable homes have been selling for in your neighborhood. Some real estate markets are relatively steady, but others may appreciate rapidly, and your home’s market value may surprise you.
Price Your Home Fairly
It may be tempting to go for a pie-in-the-sky price, but that will only hurt your chances of selling, and the longer your home sits on the market, the less interesting it becomes to potential buyers.
Don’t immediately accept an initial offer. The first offer is likely to be well below the buyer’s actual price limit, and some buyers may lowball in an attempt to drive your asking price down. Trust your agent in the negotiation process.
Negotiating with the Appraisal
While separate, both the appraisal and the inspection are points of the home selling journey when price negotiation can radically change. Hopefully, you have a good sense of your home’s value going into the home selling process, and neither the appraisal nor the inspection turns up anything surprising. But if you truly aren’t sure what your home is worth, and/or it’s been many years since your home has seen any repairs, then it might be a good idea to get an appraisal or an inspection before your home even goes on the market.
If your home doesn’t appraise for the agreed-upon price, you still have several options. The first one is the simplest, and the least popular, which is to lower the sale price. Another option is to walk away from the deal. There is also the option of trying the split the difference between the sale price and the appraisal with some of the other costs. Sometimes, a low appraisal is just as bad for the buyer as it is for the seller, and the buyers will be amenable to getting a second opinion, that is, a re-appraisal. No matter what you choose, you are going to have to work with the buyer if the deal is still going to go through.
Negotiating with the Inspection
If the inspection reveals serious problems, the buyer is going to want to negotiate on the sale price. When choosing between fixing the problems yourself or dropping the sale price, consider what percentage of the sale the fix ultimately costs.
If a fix is less than 5% of the sale price, then offer to fix it yourself. If the fix is more serious (let’s say, more than 10% of the sale price), then you might want to lower your offer. This is not only because of the expense of the fix but also because of the time that may be involved. Keep in mind, the higher the price tag on a repair, the longer it will be before you can move out.
Your Home is on the Market with No Offers! Now What?
From the time the contract with your agent is signed, the clock is ticking. The rule of thumb is that the faster a home is sold, the closer to the desired price the homeowner will get, so both you and your agent should work to get your home on and off the market as quickly as possible. But what does a homeowner do if there are no offers forthcoming, and there’s no one to even negotiate a number down with? Fortunately, these problems take one of a few typical forms, and the way the problem presents itself can give you a clue as to how to solve it.
Preparing for the Close
As the contract approaches the close, make sure you’re prepared well in advance for the closing. In addition to your agent, talk to your real estate attorney and make sure you understand any fees, taxes, commissions, or points you may have to pay. You don’t want the entire contract to be derailed by any sort of disclosure law or title insurance problems. When it comes to home selling, being ahead of the next step is a crucial part of the process and one you will want to practice every step of the way.